This is what Donald Trump would mean for Asia

July 21, 2016 | Kim Iskyan

American politics usually don’t matter that much to the rest of the world. Things don’t change much, regardless of who is sitting in America’s White House.

This time, though, it’s different. On Tuesday, Donald Trump officially became the Republican party candidate for President of the United States. If he’s elected president on November 8, it would matter – especially for Asia.

Anti-globalisation hurts Asia

The Republican party in the U.S. has for decades been pro-business, and in favour of free trade. But that’s changed with Donald Trump, who has equated American “economic independence” with getting out of long-standing trade arrangements. He’s called NAFTA – the free trade agreement between the U.S., Canada and Mexico – “the worst trade deal in the history of the country.”

He’s also called the Trans-Pacific Partnership (TPP), a 12-country trade deal that would encompass around 40 percent of total global output, a “terrible deal” for the U.S.

Trump isn’t blazing new trails with his anti-trade angle. The decision by voters in the United Kingdom to exit from the European Union reflects a global shift away from trade and openness. Trump has very effectively channeled this sentiment.

As we’ve written before, Asia stands to lose from a reversal of globalisation.
Asian economies – first Japan, then the so-called Asian tigers, then China, and now Vietnam and other emerging economies in the region – have been a major beneficiary of Americans’ endless hunger for things. But factories in Asia can only continue to feed the monster with cheap stuff if the U.S. buys it.

If tariffs in the U.S. on goods from Asia increase, the entire relationship breaks down. Production would (in time) shift either to other countries (presumably those favoured by a President Trump) or to the U.S. – both of which would hurt Asia.

China in the corner

“We can’t continue to allow China to rape our country,” Trump said recently. He’s said that one of the first things he’d do as president would be to officially designate China as a currency manipulator. A currency manipulator is a country that intentionally weakens its currency in order to make its exports cheaper and more competitive.

By declaring this, the U.S. could impose duties on “artificially cheap” Chinese products. It could also bring the two countries closer to a trade war, where they’d put tariffs or quotas on each other’s imports and exports.

Also, Trump has contended that China – which is not a signatory of the TPP – will join the TPP through “the back door.” In fact, China has in recent years made inroads into many ASEAN economies to be positioned to take advantage of the deal. So Trump is partly right on this.

Meanwhile, China’s currency has in recent days hit new lows. As we’ve written before, there are a lot of reasons for this – and it will likely continue. But in addition to these factors, the rising potential for increased trade tension is pressuring the currency.

A big shift

The rise in Donald Trump’s popularity reflects an underlying discontent amongst a large number of Americans that isn’t going to go away. Whether or not there is a President Trump, he is creating space for other politicians to follow his path. The policies of candidate Trump – his attitudes towards Asia are relatively mild compared to other things he’s said – are becoming mainstream. And then it’s a matter of time before they’re enacted.
For example, the Democratic nominee for president, Hillary Clinton, has also called for the TPP to be re-worked. The irony here is that when she was America’s chief diplomat, Clinton negotiated the TPP herself. But political pressures have pushed her to change her stance significantly.

Does it matter?

Of course, all of Trump’s bluster about trade might not mean much.

According to a recent New York Times analysis based on polling data, Trump has a 24 percent chance of winning the election. So right now – a lot can change before November – it looks unlikely that he’ll have the opportunity to change anything.

Even if there is a President Trump, it might not matter. In his 1987 book, “The Art of the Deal, ” Trump discussed his 11 key negotiation strategies. One of them focused on keeping your options open.

“I never get too attached to one deal or one approach…I keep a lot of balls in the air, because most deals fall out, no matter how promising they seem at first.” Donald Trump’s beliefs and policies are “flexible” – so if his anti-globalisation policies don’t catch on, he may just try something else.

But even if Donald Trump doesn’t become president of the United States, economies and markets in Asia will be the big losers in the next chapter of American politics.
What does this mean for Asia? It’s going to have to find new sources of demand. Markets that are benefitting from American demand will need to diversify. Economic growth will likely slow. For now, there’s nothing to do… but this is something to keep a very close eye on.

Kim Iskyan

About Kim Iskyan

Kim Iskyan has nearly 25 years of experience as a stock analyst, hedge fund manager, political risk consultant, and financial commentator in more than half a dozen emerging and frontier markets.

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